Smithsonian Agreement

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For similar uses and terms, see Smithsonian (disambiguation).
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The Smithsonian Agreement, announced in December 1971, created a new dollar standard, whereby the currencies of a number of

gold
to 38 dollars, an 8.5% increase over the previous price at which the US government had promised to redeem dollars for gold. In effect, the changing gold price devalued the dollar by 7.9%.

Background

The Bretton Woods Conference of 1944 established an international fixed exchange rate system based on the gold standard, in which currencies were pegged to the United States dollar, itself convertible into gold at $35/ounce.

A negative

public debt incurred by the Vietnam War and Great Society programs, and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued in the 1960s.[1] The drain on US gold reserves culminated with the London Gold Pool collapse in March 1968.[2]

On August 15, 1971, US President

fiat currency
.

Nixon's administration subsequently entered negotiations with industrialized allies to reassess exchange rates following this development.

Meeting in December 1971 at the

British pound the same, Italian lira +7.5%.[3] The group also planned to balance the world financial system using special drawing rights
alone.

Development

Although the Smithsonian Agreement was hailed by President Nixon as a fundamental reorganization of international monetary affairs, it failed to encourage discipline by the Federal Reserve or the United States government. The dollar price in the gold

OEEC countries decided to let their currencies float. A decade later, all industrialized states had done the same.[4][5][6]

See also

References

  1. ^ Blanchard (2000), op. cit., Ch. 9, pp. 172–173, and Ch. 23, pp. 447–450.
  2. ^ "Memorandum of discussion, Federal Open Market Committee" (PDF). Federal Reserve. 1968-03-14.
  3. ^ Otmar Emminger: DM, Dollar, Währungskrisen – Erinnerungen eines ehemaligen Bundesbankpräsidenten, 1986, p. 205
  4. doi:10.1017/S0043887109000057
    .
  5. ISBN 9780199753789
    .
  6. ^ Fu, Prof. Wong Ka. "Historical Exchange Rate Regime of Asian Countries". International Economics. The Chinese University of Hong Kong, Department of Economics. Retrieved 29 November 2013.

Further reading

External links
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